How to Start a Family Office, step 11 of 12

Set up Investment Committees and Advisory Boards

In short. Define who reviews investments, how often the committee meets, who can vote and how decisions are recorded. Decide whether to create an advisory board of outside executives and experts who can advise on strategy, management and other issues.

By Richard C. Wilson, from chapter 11 of How to Start a Family Office

Before an important investment decision, set clear authority and meeting routines. An investment committee gives your team a regular forum to review opportunities, portfolio allocations and managers, while considering risk. An advisory board lets the family office seek counsel from people outside the organization.

These groups work best when their purpose is specific. They should help the family make informed decisions, keep the investment team aligned and bring relevant expertise into the room. Meetings need clear ownership and a reason to take place.

Define the Committee's Job

An investment committee is a senior staff group that oversees the family office's investment activity. It can review current holdings and prospective opportunities, consider portfolio construction and risk, evaluate managers, and help carry out the family's investment policy. For an overview of the policy that guides those decisions, see how a family office should write an investment policy statement.

Decide which matters need committee review and which staff can handle. New investments often pass through the committee, but an analyst or committee member can screen an opportunity first. That keeps meetings focused on decisions and avoids using senior people's time to sort through every proposal that arrives.

Match the committee's work to the actual portfolio. A family office that actively monitors managers in one area may need frequent discussion of that portfolio. Other holdings may need review only at set intervals. The meeting schedule and agenda should reflect that difference. Staff responsible for one area do not need to attend every discussion if the subject falls outside their work.

Choose Members and Set Decision Rights

Keep the standing group small enough to make decisions and work through disagreements. Investment professionals usually make up most of the committee. Other staff, such as people with legal, accounting or management experience, can contribute when their knowledge is useful. Family members may attend based on their interests and desired level of involvement. The CIO often leads meetings and coordinates the members.

Include people needed to understand or decide the matter. Too many attendees can pull people away from their regular responsibilities and make a meeting less effective. A family member who does not want to attend routine portfolio reviews can still join discussions about major changes or areas that matter to them. Keep the family informed through minutes and a CIO summary of significant developments, especially when family members are less involved in daily investment work.

Set out who has authority before the committee starts reviewing investments. Does the family head make the final decision, does the CIO, or does the committee decide by vote? Define how voting works and who can approve an investment. If the answer is unclear, disagreement about authority can make decisions harder when an opportunity or difficult choice comes up. A committee charter should state its purpose, organization and voting rules.

For the broader responsibilities and structures that shape an office, see what family office governance involves.

Run Meetings With Purpose

Set an agenda and identify who prepares it, records minutes and tracks follow-up items. Give each topic an appropriate amount of time. A meeting leader, often the CIO or another senior member, should keep discussion moving while allowing members to question assumptions and present different views.

Debate can improve a decision when it stays tied to the question at hand. Encourage members to explain their reasoning, surface risks and consider other perspectives. Agree on how discussion leads to a decision. Record the outcome, the responsible person and any follow-up needed. This gives the family office a clear record of what was decided and who is taking the next step.

Some offices may find it useful to separate decisions about long-term allocation from more frequent portfolio adjustments. The strategic group can focus on major asset categories and geographic choices, while a smaller group handles tactical questions on a different schedule. Use this structure only if the work calls for it. The aim is to give each decision the right forum and people.

Committee activity should follow the investment process your office has established. You can also review the role of an investment committee in a family office as you set the committee's scope.

Build an Advisory Board for Outside Counsel

An advisory board is a consultative group of executives and experts from outside the family office. Members can bring experience in areas such as corporate management and entrepreneurship. They may meet on a regular schedule to discuss strategy or management, along with issues identified by the board chair. Family office staff may also seek a member's counsel between formal meetings.

Choose members for the knowledge and judgment they can contribute, and be clear about what the board is being asked to advise on. The board provides counsel; the family office still needs to know who holds decision authority. Set expectations for meeting preparation and follow-up, and define the topics members will address so their time is used well.

An outside perspective can help a committee test its assumptions and avoid settling too quickly on a shared view. For guidance on timing and structure, see when to add an advisory board or independent directors.

Once the family has agreed on the committee's mandate, membership, meeting rhythm and authority, put those decisions in writing. Review the arrangement when the portfolio or the family's involvement changes. A working committee and a useful advisory board give your office a place to discuss important matters with the right people, then carry decisions forward with clear responsibility.

The voting power, mission, and structure of the investment committee should be reflected in the Charter.